You don't have to be crazy, but it helps

The news yesterday carried a "story" which said that Congressional Republicans had vowed to stop everything until the budget is passed, which would presumably include an insistence that the Bush tax cuts would be extended. You may remember, these are the tax cuts that were not going to destroy the budget surplus. These are the tax cuts that were pushed by Republicans on the eve of going to war in two countries on the other side of the world and while pushing for Medicare D to be created. Oddly, there was nary a complaint of what impact these tax cuts would have on the federal deficit.

Of more interest is the contrast between Republican arguments for opposing the tax hike on high income earners and the Republican arguments for opposing the continuation of unemployment benefits. One has to be schizophrenic to accept them both as logical positions based on what is being said. Or just plain stupid.

We can't raise taxes on the wealthy, we are told, because they are the ones who create jobs and we just aren't adding jobs to our economy, even though the recession is officially over. This is true even though raising taxes on high income earners would help hold down the annual deficit (but not without severe cuts somewhere) and the deficit, and the accumulated debt that comes with it, are supposedly the biggest reason why people elected Republicans. In fact, the deficit is so big that Republicans can't go along with extended unemployment benefits (remember, this is a jobless recovery) because it would increase the budget deficit.

But the cost of providing unemployment benefits is a fraction of the cost of extending just the highest earners' tax cut. The bill to extend unemployment benefits would cost about $12.5 billion between now and February. The extended tax cut would cost about $700 billion. Plus the costs of unemployment benefits would be limited to the lifetime of the bill, while the tax cuts would be limited to...well, we don't actually have a timeframe yet. But it would be a lot longer than February.

The true insanity of this position is understood when the American economy as a whole is studied. Consumer spending is somewhere between sixty and seventy percent of our GDP in an average year. The last time I checked, people on unemployment are not using their benefits for building a stock portfolio - they spend it. This is why the White House Council of Economic Advisors estimates that as many as 600,000 jobs have either been saved or created by the unemployment extension that is now running out. While people with very high incomes also spend a lot of money, there is little guarantee that they will spend it here - and there is no guarantee that they will invest in American companies if they decide to invest their windfall. Of course, it's their money and they can do whatever they want with it, but if the purpose is to shore up the American economy and create jobs, unemployment is at least as worthy a way to do it as are tax cuts for the wealthy.

What I've yet to hear anyone but Rob Tornoe say (yes, a cartoonist appears to have a better grip on this than all the highly paid pundits) is that if you maintain the tax cuts for everyone except the very top tax bracket, then even those at the top are still paying less in taxes before the tax cuts were enacted. That's because the progressive nature of our tax system ensures that increasing the tax rate on incomes in excess of $200,000 only increases taxes on the part of a person's income that is in excess of $200,000. Everything they make that is less than $200,000 is still taxed at lower rates. In other words, they get the same deal as the rest of us on the first $200,000 they make in a single year.

Let me say, though, that Democrats are just as schizophrenic in their arguments. They want to extend unemployment benefits, but not pay for them because they are so badly needed. Not paying for benefits means, necessarily, that the deficit will be increased. But they want to raise taxes on the top bracket because they don't want to increase the deficit.

So lets split the difference and find a reasonable center. We should pay for benefits as we dole them out. So how about keeping all of the Bush tax cuts, but levying a sur-charge on incomes in excess of a million dollars per year - or even five million per year - that would exactly offset the increased costs of unemployment benefits? For the year 2008 (IRS Statistics of Income are not available for later years), households with incomes in excess of $1 million per year accounted for a total of somewhere around $1,073 billion (just over a trillion bucks). That means that a sur-tax of 1.5% would more than cover us through February. And before anyone goes crying about killing jobs, please tell me how many jobs these folks created with the last 1.5% of their income - versus whatever macro effect they had with the first 98.5%.

That way the majority of small business owners would be exempted from the tax increase. The unemployed could be tided along until next February (at which point we would have to extend benefits again, because no one expects unemployment to fall below nine percent before the end of next year). And, for once, we'd have an example of our political leaders acting both humanely and with fiscal discipline. In other words, they'd act like grown-ups instead of psychiatric patients badly in need of a new prescription.